Colombia's Petrolatina increases revenue despite crude prices plunge

The Colombia-based junior oil company Petrolatina will manage to increase its sales revenue this year following fast growth from past years even amid sharply lower crude oil prices.

“The company closed last year with $84 million in revenue while in 2008 it only had $8 million. This year it will close with $90 million,” Jaime Ramirez, investment director of the Colombian Tribeca asset management fund told Latin Business Daily by telephone from New York.

Tribeca was created to help channel the investment from pension funds in Colombia into private companies like Petrolatina. It raised $131.5 million in 2007, which was invested in five companies, one of them being Petrolatina, Ramirez said. Companies are bought to create value and later be resold.

Petrolatina was acquired by Tribeca in 2008.

“In June 2008 it had proved and probable reserves of 5 million barrels and production of only 250 barrels per day in 12 productive wells,” Ramirez said.

“One of the things we did was to strengthen the technical team because the success of an oil company depends on its drillings. Each well costs between $8 to $10 million,” Ramirez added.

With a stronger team, Petrolatina achieve a rate of 80 percent success in explorations, which helped increase the number of production wells to 40 in 2014 compared with 12 when the company was bought.

Another strength of the company is in social investments, like school constructions, which has helped minimize blockades, Ramirez said.

A loan of $40 million was obtained in 2010 and the funds were used to drill wells. The company had zero debt when it was acquired but lacked investment capacity, Ramirez said.

“All of this led us to make an important discovery in 2013 and we increased reserves to 65 million barrels. Production later rose to over 7,000 barrels,” Ramirez said.

The increase in revenue continues, though at a slower rate, due to crude price declines.

“Crude prices were at $110 per barrel in June 2014 and now they are at $45 which means a decline of about 60 percent, “ Ramirez said.

Petrolatina, however, is still profitable due to low production costs.

“Petrolatina's lifting costs, which is the cost of extracting the barrel to the surface, is $8. Once all other costs are included, like transportation to the port as well as administrative and financial costs, a barrel of the Vasconia crude that the company produces reaches the port of Barranquilla at anywhere from $22 to $24 per barrel," Ramirez said.

Tribeca wants to sell the asset now instead of waiting for better prices.

“We can´t and that is mostly because of our mandate which is to be temporary investors. We have generated the value and believe that even at current prices the profitability will be high,” Ramirez said. What is needed now is to build the wells to extract those certified new reserves, he said. 

The crude oil is moved by truck. All production is sold to Shell.